NVIDIA's Rubin Ultra 'Downgrade' Turns into a Boon: UBS Sees Micron Benefiting

According to Marketwatch, NVIDIA (NVDA-US) is reportedly adjusting the design of its next-generation Rubin Ultra AI chip, considering a reduction in the amount of high-bandwidth memory (HBM) per chip to address supply shortages. UBS analysts believe that while this change may reduce HBM usage per chip, it could lead NVIDIA to increase chip shipments, thereby boosting overall HBM demand and benefiting memory suppliers like Micron (MU-US).

UBS analyst Timothy Arcuri stated on Monday (10th) that NVIDIA may have downgraded certain specifications of Rubin Ultra and is currently testing versions with less memory. If the new design is finalized, the market may need to deploy more chips to maintain the same level of computing and memory capacity.

In other words, while each Rubin Ultra chip uses less HBM, the total number of chips required could increase. Arcuri estimates that this shift—lower per-chip usage but higher chip count—could result in higher total HBM consumption by 2027 than previously expected. NVIDIA has not yet responded to reports about the Rubin Ultra specification adjustments.

HBM supply remains tight, and price increases are exceeding expectations. Arcuri noted that the HBM market's supply-demand balance continues to tighten, with HBM4 and HBM4E pricing stronger than UBS's prior forecasts. Memory suppliers are re-expanding the price premium of HBM over standard DRAM, potentially driving HBM average selling prices up approximately 79% year-on-year—higher than UBS's earlier estimate of 67%.

Micron, alongside South Korea's SK Hynix (SKHY-US) and Samsung Electronics (005930-KR), is one of the world's leading HBM suppliers. As AI servers require large amounts of high-performance memory, Micron stands to benefit from both rising HBM demand and higher prices.

Beyond HBM, NAND flash memory demand remains positive. Arcuri pointed out that demand for solid-state drives (SSDs) used in servers and storage systems is stronger than expected, offsetting weakness in the PC market and continuing to push up NAND contract prices. Although the quarterly increase in NAND average selling prices may fall short of UBS's initial estimates, overall demand remains supported. As a result, UBS has raised its 2024 NAND bit demand growth forecast to 23% and expects further growth of 26% by 2027.

UBS believes Micron's profitability is undergoing a structural transformation. Arcuri further projects that Micron's earnings per share (EPS) could remain above $160 by 2029 and that the company's cumulative free cash flow through 2028 could exceed $450 billion. He believes Micron's earnings sustainability and visibility could lead the market to revalue the company at multiples closer to the broader semiconductor industry.

Micron's stock fell about 1.9% on Monday but is still up 172% year-to-date.

Micron's Chief Business Officer, Sumit Sadana, said on Monday at the KeyBanc Technology Leaders Forum that the tight memory supply situation could extend beyond 2027 due to rapidly increasing customer demand. Sadana noted that despite Micron's ongoing capacity expansion efforts, it remains uncertain when supply will catch up with demand. Unlike past memory industry cycles, AI is still in its early stages of rapid development, with evolving technologies continuously driving memory demand upward.

The rapid growth in HBM demand is also crowding out wafer capacity available for other memory products. However, increasing wafer supply is a long-term process requiring facility expansions, equipment installation, and capacity ramp-up, making short-term solutions difficult. Sadana added that despite rising memory prices, Micron's data center and other business customers remain actively seeking more products, indicating that current demand has not significantly cooled due to higher prices.